ZET Blog: Diaspora Remittance Taxes

The Overseas Development Institute (ODI) hosted a public event in 2014 about the high cost of sending remittances to Africa. It brought together various speakers from the banking sector, NGOs, politicians and the money transfer market, interestingly, no migrants were on the panel. The central point highlighted the significance of remittances for Africa’s development and particularly how and why sending money to Africa attracts such high charges compared to other parts of the world; some of the key points are as follows:

According to ODI’s report on remittance cost to Africa, compared to other developing regions like South East Asia and Latin America, (i) remittance flows to Africa are still smaller than Aid to Africa, (ii) they are also lower than private capital and Foreign Direct Investment, though much less volatile. The report also estimates that remittances to Sub Saharan Africa are about USD32 billion, (half of the USD60 Billion estimated by the World Bank for the whole of Africa). (iii) This figure represents about 2% of the regional GDP, that’s the average for the whole of Sub Saharan Africa, (iv) yet remittances are not equally distributed in this region; Nigeria for example, receives the highest amount of remittances compared to smaller countries like Lesotho. Therefore this implies that out of 54 countries in Africa, SSA (as defined by the UN) has 48 countries – all of which receive USD32 Billion, compared to the 6 North African countries that are considered part of the Arab world, receiving the balance of USD28 Billion. (v) The report then frames remittances as an important source of support for SSA families at household level, citing how they are used to pay for education, health, investment in home building, businesses and all the things an average African already knows.

So, if remittances are so important, why is it so expensive to send money to Africa? First, the average global cost of sending money is estimated at 7.8 %, to South Asia it costs about 6.5%, yet sending money to Africa costs 12%. This is more than twice what was recommended at the 2009 G8 summit labelled the 5×5 initiative, which meant to bring down remittance costs to 5% globally. All this means that on average SS Africans pay USD2.2 Billion more than the recommended 5×5 estimate each year. To understand this, the report summaries four ways for sending money to SSA through Banks, Post Office, Money Transfer Operators (MTO) and Others. However, 89% of all transfers are through MTOs and a detailed look at the main MTOs revealed that MoneyGram covers 24% and Western Union covers 40%, therefore 2 thirds of all money transferred to SSA is through 2 private operators that have created a duopoly. This lack of competition is cited as the reason why charges are so exorbitant and also why SSA is specifically affected compared to the rest of the world. The report goes on to reveal how the two operators have shared the SSA market geographically between them to further reduce competition even between the two, yet another ‘Berlin Conference’.

While all this is very informative and interesting, it begged some questions from the diaspora; for example, why is ODI (which is funded by DFID) suddenly interested in spending so much money to carry out this research and report? What’s the end goal and how will this research essentially “pay dividend” to its commissioners? There was talk that perhaps DFID and other traditional donors may be trying to find a way to access remittances under the rubric of ‘saving Africans’ yet again, what with the crisis and austerity these days. Though it is unclear how this can be achieved since migrants have no such confidence in sending money through traditional donors or their various governments. However, these bigger players do hold policy strings and by ‘attacking’ the MTO sector, it gives them leeway to ‘muscle’ into the market under the label of driving down sending costs through competition. While no such declaration was made (even though The Global Native asked that question specifically) the Shadow Minister for Education Rushanara Ali MP, alluded to the creation of what she called a “Remittance Bank” of some sort. This perhaps partially explained the absence of migrants from the forum, since they only represent a ‘moral impetus’ for carrying out this work.

In fact, ODI approached The Global Native asking for testimonials from migrants regarding their experience of paying such high costs, and perhaps including how much more could have been achieved had the charges been lower. The Global Native put this request to some of the migrant communities in London and the response was exactly that of high suspicion. They wondered what would be done with their information, would this go on some official data base for other Machiavellic use? They essentially refused to be ‘used to justify some potential policy they don’t understand’. Some even questioned why the Africans are not organising these events themselves. So I took a quick glance and found that the African Union Commission established the African Institute for Remittances, (AIR) signed in December 2009, in partnership with The World Bank, African Development Bank, European Commission and the International Organisation for Migration. They have a web page which is still under construction, and Facebook page that has only 162 followers, I felt compelled to ‘like’ it, so now they have 163, in fact it made me feel like a founding member. Granted, it is new and there’s much to be done, though I did muse over the irony that Africa’s remittance authority is broke.

Other thoughts at the event pointed out how ironic and hypocritical it was that here are organisations, such ODI funded by DFID, who are controlled by the Foreign and Commonwealth Office (FCO) which writes migration policy- publicly declaring to be fighting for migrants and yet “one can’t switch on the TV without hearing how bad migrants are for the UK” said one attendant. What’s even worse is that “here we are running to such events ourselves, knowing how much we are badly treated by these very same people, as though we really deserve to be cheated like this” said another migrant. While all these concerns are very real, it is still an interesting time of shifting alliances and perhaps while the ODI report may not herald a genuine care for migrants and their cause – this “fight between governments and banks and these others” which the same attendant suspects, can be an opportunity for positive change if the diaspora can think it through and find ways to take advantage of it. The Global Native is very keen to understand what opportunities may lie in the fission created by this “suspected dispute” between giants. As the proverbs says, ‘when elephants fight, the grass gets hurt’ so it is in the grasses interest to watch these events keenly; but equally so, ‘after every revolution comes a new order, but before that, there’s opportunity’. That last line is taken from a good movie, just in case you’ve seen it. So, what are your thoughts?

This article originally appeared on the Global Native website in 2014

Written by Na Ncube, Director of The Global Native
Edited by Hannah O’Riordan, ZET Operations Manager